Periodically, you need to take a comprehensive, objective look at every expense your business is incurring in order to spot cash-flow leaks that could weaken the business. From unused subscriptions to overly expensive corporate service plans and insurance policies, this self-audit can give you a list of expenses that can be eliminated or renegotiated, saving your business thousands, even tens of thousands of dollars, each year.
“As Benjamin Franklin once said: ‘Beware of little expenses; a small leak will sink a great ship,’” cites Maria Camila Bernal, marketing manager for www.doitwiser.com. To identify your own business’s small leaks, follow these tips to conduct a self-audit.
Step One: Time it right. Cassie Brown, a certified special events professional and CEO and owner of TCG Events suggests conducting this self-audit during a slow time in your business so you can give it your undivided attention. It’s worth it. “Eliminating cash leaks allows money to be moved from areas that do not contribute to ROI to areas that do, such as marketing, employee retention, and research & development,” she says.
“Don’t just look for the easy cuts. Pick a few areas, and brainstorm with the team on ways to make changes and improve efficiencies,” Brown says. “Ask questions like, ‘How would you have done it as a start-up?’ ‘Is this cost absolutely necessary?’”
Step Two: Analyze your cash flow. This will allow you to identify trends and potentially alarming outliers. If last year’s expenses were $10,000 and this year’s are $12,000, you need to see why they went up, and compare them to monthly and quarterly figures.
“Compare expenses over various periods; measure year-over-year change, as well as year-to-date and month-over-month fluctuation. If any expense trends upward, dig deeper,” says Jeffrey Sklar, CPA, managing partner of Sklar, Heyman, Hirshfield & Kantor LLP, a New York-based accounting firm also licensed in New Jersey and Florida.
Step Three: Look at the percentages. As you examine where your cash flow goes, determine what each expense line represents as a percentage of total revenue. Make sure you consider every type of expense, from insurance policies to vendor bills to your employees’ individual spending habits. Sklar suggests closely reviewing every expense incurred by your team, especially those charged on business credit cards. Ensure you have clearly communicated your reimbursement policy, and provide specific guidelines on what employees should spend on things like business travel, cabs, and client dinners. Remember to look for the stories behind the numbers, and get insights from your employees to better flag potential cost-savings opportunities.
“Even if an increase or decrease in expenses against revenue doesn’t seem ‘big,’ a detailed review could reveal a lot,” he says.
Step Four: Review all business expenses thoroughly. It’s important to review all expenses closely, especially in three key areas where businesses commonly overspend:
1. Shipping costs
If you ship multiple packages to final customers, one of the main areas where you could be spending extra money without noticing is freight charges. Many carriers also offer B2B discount programs. Call your provider to confirm you’re taking advantage of every promotion possible.
“You need to check the bills carefully, looking for fees like residential or dimensional weight. There are new companies in the market offering competitive rates for regional deliveries, so it’s worth shopping around,” Bernal says.
2. Mobile phone usage
Many companies do not review mobile phone bills to spot errors or overcharges. In addition, many don’t realize they can often use less expensive programs offered by various carriers, Sklar says. Again, it’s about not becoming complacent and taking the steps necessary to ensure you’ve got the best deal possible.
3. Service contracts
Sklar also suggests analyzing service contracts and comparing them to the cost of new capital equipment. “Quite often, it is cheaper to replace equipment rather than maintain service contracts,” he says. p
Additionally, review your IT provider, payroll service, marketing efforts, and business insurance. Many owners get business insurance from the same company that provides their home and car coverage, but specialized business insurance providers may offer better rates.
A thorough review of your income and business expenses can reveal cash leaks and opportunities to save money. Be sure to conduct your audit at least annually, as new expenses can crop up on a regular basis and should be reviewed to ensure you’re spending in the most efficient way possible.
